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Tuesday, 30 December 2014

My portfolio experienced quite a few changes in 2014 and I thought its good to highlight a few for my own tracking purposes. I consider this year a lucky year for me as I've sold my 2 main losers before it went down even further. I'm glad to realize a few winners too although most of them went even higher after my sales. Also, my event-type portfolio did not register any losses for 2014. Currently I have 15 Singapore companies in my portfolio and throughout the year it fluctuated between 14 to 18 stocks. Percent wise, my largest total unrealized loss currently in my SG portfolio is -4.4% while the largest total unrealized gain is about +61.3%, both inclusive of dividends.

I classify my portfolio to 2 main types. The first is the normal ones where we just make the purchase based on its quantitiative & qualitative strength and hold on to them until value is realized. The second type consists of event-driven stocks wherein their results depend a lot on certain external or internal corporate action(s) which I feel will close the price-value gap in a reasonably short period of time. Unlike in the USA, these situations are few and far between in Singapore. Consequently, I define them quite loosely and am pretty flexible with the type of event that occurred. For this group, I ensure that there is at least some degree of undervaluation before I make my purchases just to be safe.

Below is a list of my top realized winners (I define this by a more than 30% gain on an annualized basis) and my worst realized losers (Since annualized loss shows less meaning here, I define it by a total loss of more than 10%). Typically I'll buy up or sell down my shares on a scale over a period of time. To make things simple, my annualized returns are based on a maximum holding period which means the actual returns should be slightly higher.

Top Realized Winners

SMRT Corporation Ltd

Average
Cost (Incl. Fees): S$1.02

Average
Sold: S$1.49

Max Holding
Period: 211 days

Returns
(net of costs, include div) based on avg price: +47.6%

Annualized: +96.0%Comment: Quite lucky here as a short while from my initial purchase, the price spiked up due to government's announcement about the new model. Nevertheless, the price at S$1.02 was clearly undervalued. The non-fare segment of the company was rather attractive too. Considering the nature and moat of the business, I probably run the risk that I've sold too low at S$1.49. Price now is S$1.58.

PNE Industries

Average
Cost (Incl. Fees): S$0.1044

Average
Sold: S$0.167

Max Holding
Period: 480 days

Returns
(net of costs, include div) based on avg price: +82.25%

Annualized: +57.8%Comment: Price now at S$0.151.

UE E&C Ltd

Average Cost (Incl. Fees): S$0.737

Average Sold: S$1.20

Max Holding Period: 694 days

Returns (net of costs, include div) based on avg price: +77.4%

Annualized: +35.2%Comment: Price now at S$1.26.

Koyo International

Average
Cost (Incl. Fees): S$0.0528

Average
Sold: 0.0864

Max Holding
Period: 688 days

Returns
(net of costs, include div) based on avg price: +66.4%

Annualized: +31.0%Comment: Unfortunately the price thereafter went up as high as S$0.194. If I'm a bit more patient, it could have been a 250+% gain... Price now at S$0.154.

Worst Realized Losers

Vard Holdings

Average
Cost (Incl. Fees): S$1.097

Average
Sold: S$0.958

Max Holding
Period: 468 days

Returns
(net of costs, include div) based on avg price: -12.7%

Annualized:
-10.0%

Comment: This is probably my most foolish purchase in 2013. Fortunately, I sold months before the steep fall in oil prices. Counter is at S$0.595 now.

Fujian Zhenyun Plastics

Average
Cost (Incl. Fees): S$0.168

Average
Sold: S$0.155

Max Holding
Period: 934 days

Returns
(net of costs, include div) based on avg price: -1.8%

Annualized:
-0.71%Comment: Lucky here as I heard it is recently suspended due to some issues with its accounts. Price now at S$0.149.

Top Event-Type Winners

Fuji Offset Plates Manufacturing Ltd

Average
Cost (Incl. Fees): S$0.35

Average
Sold: S$0.45

Max Holding
Period: 2 days

Returns
(net of costs, include div) based on avg price: +27.9%

Annualized (Simple
Average): >5000%

Captii Ltd

Average
Cost (Incl. Fees): S$0.0351

Average
Sold: S$0.041

Max Holding
Period: 123 days

Returns
(net of costs, include div) based on avg price: +17.5%

Annualized: +61.3%

From both the realized and unrealized results, I'm glad that my endeavor to ensure the risk of permanent capital loss is kept to the minimum has been working well. More details about my investment philosophy can be found in my post here. As always, I find that the timing of sales is always the hardest part of the entire investment process. Should we wait for the momentum to fizzle before selling even though it is already above my estimated value? But then again, how do we know that momentum has fizzled and what if the price falls below intrinsic value and never goes back up again? Because of this problem, I tend to start selling in phases when it is near my estimate of intrinsic value range. I guess the trick here is really to make purchases at a price so low that even if the sale is mediocre, the eventual results will still turn out good.

Some Recent Picks

I shall end off this post with 3 recent picks for my portfolio. For the normal portfolio, they are Sembcorp Industries and AP Oil International. You may want to check out my analysis for Sembcorp Industries here and AP Oil here. The event-type pick would be Avi-Tech Electronics Limited (company website) which I have accumulated at an average price including costs of S$0.699. Let's see how things goes from here. What about you guys? Care to share what are some of your picks? Have a fantastic 2015 ahead!

Thanks for your blessings. Yes, 2014 may be a good year for my portfolio but my opinion is that short-term results (less than 3-5 years) have little overall meaning. My portfolio may be doing spectacularly in 2014 (especially during this period of bull market) but I can never guarantee it will do just as well in the next 5 or even 10 years.

For me now, I'll continue to stick to my investment principles which has not failed me so far in my investing journey and also learn as much as possible from other investors including you :) Let's hope for the best to both of us!

I've recently bought a small position in Avi Tech Electronics as well. The company is trading below net current asset value and much of their assets are held in cash. Their operations may have turned around, but I don't know the industry well enough to be confident about that. There also looks to be substantial value in their real estate assets.

I do feel that the shareholders of AVI Tech need to make themselves heard and get management on the right path. I don't know if the Singapore market is known for any activist activity of shareholders. AVI Tech seems to me an opportunity for an activist fund to become involved and unlock value. Management owns about 31% of the shares. The rest of the shareholder base consists of small holders it looks like. Many of them must be very unhappy with the stock showing a decline of 90% since their IPO.

Management has destroyed a lot of value with their purchase of the subsidiaries in the USA. They did the right thing in finally closing these operations down, but a lot of damage was done.

I think it is unacceptable that they are still looking at making other acquisitions, judging from the language used in their most recent annual report. In my opinion their top priority should now be salvaging the remaining value for the shareholders. Now that the company has been placed on the SGX watchlist, the clock is ticking. All excess cash should be distributed to shareholders. I believe the company should focus exclusively on running the remaining operations with the ultimate goal of selling the business.

My personal opinion is that the stock market in many Asian nations including Singapore are not as mature as compared to the USA and European countries and there is rarely any activist activity by shareholders. Thus, the probability of convergence in the price-value gap due to activist activity is quite low and we cannot depend on that.

Like what you say, management has destroyed value over the years with their loss-making subsidiaries causing a corresponding drastic decline in stock price. However, my investment thesis is mainly based on 4 factors: 1) The poorer business fundamentals combined with the inclusion onto the watch-list has led to a stock price decline that is likely over-exaggerated, 2) This exaggeration led to a fair degree of undervaluation, 3) Directors has been buying back shares recently with their own money, showing some potential in future share price appreciation & 4) The disposal of loss making subsidiaries may improve future earnings at least in the short term which may prop up the market price.

The key risk or uncertainty here is management has indicated that acquisitions are still the way to go. I’m still unsure how capable the management is and whether they really learnt their lesson from previous experiences. This is something I doubt we have much control about. I also hope all excess cash can be returned to shareholders but I wouldn’t bet on it. Considering the pros and cons, I think the low price now and potential catalyst makes it look pretty attractive but the sizing of the position in the portfolio should be kept relatively small just in case management screw things up again. What do you think?

For me Avi Tech is a low conviction stock at this point. Another poor acquisition by management is a major risk.

It would take an activist or some sort of effort by individual shareholders to make me feel more comfortable. You're right in saying that we can't count on an activist emerging. At the same time, management owns about a third of the company, not the entire company. Individual shareholders often do have power and can influence decisions made by management.

Management needs to act to get the company off the watchlist and looking at the rules it doesn't look easy: http://rulebook.sgx.com/en/display/display_viewall.html?rbid=3271&element_id=5353&print=1 . We're quite a way removed from a $40 million market cap for example.

Another option seems to be to move the listing to Catalist if the company fails to meet the criteria.

Do you know examples of very cash-rich companies like Avi Tech that made a really low "exit offer" as described in Rule 1306 & 1309?: http://rulebook.sgx.com/en/display/display_viewall.html?rbid=3271&element_id=5334&print=1 . That could be a way for management to lock out investors from most of the cash. It seems very hard to justify to me and I would hope the Singapore Exchange would not allow that to happen.

Avi-tech is also a small position in my portfolio due to the risk factors mentioned in my previous reply. Due to it’s classification in my portfolio highlighted in the post & unless there’s any clear-cut change in circumstances, my guess is that I will take most of my profits (if any) within the next 12 months.

Avi-Tech has 24 months from September this year to make things right and yes, the criteria ain’t going to be easy. Current market cap of about $27M means the share price needs to go up by another 48.1% - not impossible, but definitely not easy as well. Based on 2013 results, it appears that the core business is also looking at some losses. 1Q14 results seemed somewhat encouraging – if annualized, may be able to match Rule 1314(2). Despite improving results, the core business is in a difficult semi-conductor industry which presents a challenge that the management need to carefully navigate. No clear conclusion can be made whether management can resolve this watchlist issue, especially when they have clear intention to continue growing through merger and acquisitions which adds further to the uncertainty. What I can say is that the price is clearly too attractive to be denied by the security analyst (I believe you agree with me on this point).

I had a few encounters where SGX companies in my portfolio are being taken over but almost all occurred at what I judged to be done at a reasonably fair price. So far, I’ve not seen cash-rich companies in SGX made a really low exit-offer, at least not those in my portfolio. I believe SGX, existing shareholders and the independent financial adviser appointed should be sensible enough to ensure a too low exit offer won’t happen.

Like I've mentioned in the post itself, probably some are plain luck (eg: SMRT went up shortly after my purchase and Vard crashed down further some time after my sales).

You're right, some of my holdings are less well-known stocks (but there are common ones like SMRT, Vard, UE E&C as well). There's many ways you can identify them.

One way is probably to interact with your friends or people with similar approach - they've done the research for you, you just need to check and confirm to make sure it makes sense.

Another common method will be to do the standard quantitative and/or qualitative screens which will give you almost immediate results but it'll take a while for further analysis before you decide on the few.

Of course, screeners are never perfect and if you have the time you may want to start looking at individual stocks, one by one, starting from A to Z (based on a few criteria, including those criterias that can't be easily filtered by a stock screen). If I'm not wrong, there are about 700+ stocks in SGX. Probably you'll filter out about 60-70 companies that met your initial criteria & the hard part is to streamline them further to meet your ideal portfolio mix.

Hope this helps. Maybe you can share your way of finding the stocks you want too? :-)

I started with industry I worked for i.e. O&G. Companies in my daily life. I met with accident in 2013 n visited RFM. Impressed by its services, I researched n bought into it. Read my post here. Of course I took a taxi comfort delgro n drink coca cola.

Great that your investment edge includes your own personal experience with the company itself – not everyone can put that into an overall investment perspective. I’ve read both your articles about raffles medical in your blog (commented on it too) and they are insightful. My portfolio currently does not have any holdings in REITS so maybe you can share some of your key thoughts or criterias about it with me :)

I have to agree with you that leadership and management are important but my experience in analysing those does not show a good track record overall (I have still much to learn in that area). That’s why I try to diversify them out.

Thanks for visiting my blog. You may want to follow this link here to my comment regarding how I screen for stocks.

I don't specifically screen for net-net stocks but the 3 ways I mentioned in the comment (the quantitative screens like low P/Bs etc will probably be the most effective in this case) will certainly bring about some of these that are worth considering. Another way could be looking at the 52-week low list.

Such stocks are harder to find nowadays so I believe the analyst need to find out other tools or strategies sooner or later to generate ideas. Hope it helps :)

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